Follow the rules to successful home buying

Follow the rules to successful home buying

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Certified Financial Planner John Fawaz shared Wednesday some ways to make sure the dream is reached successfully. Certified Financial Planner John Fawaz shared Wednesday some ways to make sure the dream is reached successfully.

KNOXVILLE (WATE) - Reaching the American dream of home ownership isn't easy. In his weekly appearance on Good Morning Tennessee, Certified Financial Planner John Fawaz shared some ways to make sure the dream is reached successfully.

Have sufficient down payment
Fawaz says 20 percent is the magic number for a down payment. Though many people will find it daunting to save that much, it is the smart way to buying a home. Putting that much down shows you are financially ready to own a home. You also avoid PMI (private mortgage insurance) which cost 0.5% to 1.5% of your loan per year, which could add a couple hundred dollars extra to your mortgage payment. During the real estate and mortgage meltdown most small community banks and credit union did not suffer because they mandated 20 percent down.

Know how much house you can afford
Your monthly payment should not exceed 28 percent of your gross income. Recurring monthly payment for all debts, car loans, credit cards and student loans should not exceed 36 percent. Fawaz adds that if you can't afford a 15-year mortgage payment then you have gone over budget. He is not not a fan of 30-year mortgages because if you have a $100,000 30-year mortgage you pay three times the interest.

Don't use the wrong reason to buying a home
You should not justify a home purchase because of tax saving on interest. For most people the standard deduction is much higher than what you get if you itemize. Even if you itemize it won't make substantial difference.

Avoid condos
This rule is especially true for the Knoxville area. In big cities or areas where real estate is very expensive that might the only choice. The reason for this rule is the association fees and assessment fees that get added. Most people don't realize that the association fees can be increased anytime. All condo associations can charge an assessment fee on top of an association fee. For example, condo owners can be required to pay $12,000 for their $100,000 condo because repair work is needed to be done. Also, getting financing for condos is much harder than houses.

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